80/20 Tip Credit Rule Is Target of Restaurant Group Lawsuit

Author: Michael Cardman, XpertHR Legal Editor

July 18, 2018

The restaurant industry is hoping to overturn a federal policy that prohibits employers from claiming a minimum wage tip credit for employees who spend more than 20% of their time performing duties that do not directly produce tips, such as washing dishes or making coffee.

The Restaurant Law Center, the legal arm of the National Restaurant Association, has filed a lawsuit against the US Department of Labor (DOL). The lawsuit asks a federal court in Texas to set aside a provision in the DOL's enforcement manual, often called the "80/20 rule," even though it did not go through federal rulemaking procedures.

Several collective actions filed under the Fair Labor Standards Act (FLSA) have cited the 80/20 rule in support of claims that employees were not eligible for the tip credit and therefore were entitled to back wages.

In 2011, the 8th Circuit Court of Appeals held that the 80/20 rule is reasonable and entitled to deference from the courts. In 2017, a three-judge panel of the 9th Circuit Court of Appeals, which covers Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon and Washington, rejected the DOL's interpretation. However, earlier this year, the 9th Circuit ordered that the case be re-heard en banc in front of a full 11-judge panel.

If the Western District of Texas rules in favor of the restaurant industry and the 5th Circuit Court of Appeals upholds the ruling on appeal, or if the full 9th Circuit re-affirms its 2017 ruling, it would create a split in the circuits that could bring the issue before the US Supreme Court.